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Weekly Market Update for August 21, 2020

by JM Hanley

Tech stocks powered the market to a new high this week. The SP 500 finished up a little under a percent. It’s up five percent since the start of the year. Besides technology, consumer discretionary led the way this week. Energy and financial firms were the laggards. The tech-heavy Nasdaq rose nearly 3%.

In the US, coronavirus case counts continued their slow ebb from the peak reached midsummer. The percent of tests returned positive was essentially unchanged from a week ago. Hospitalizations declined modestly once again. Improved treatments for the disease may result in patients being discharged more quickly. Cases have ticked up in some rural states in the Midwest and New England where the virus had previously been under control. However, the populous Sun Belt is more problematic. After falling from their earlier peak, cases have plateaued at a still-high level.

Economic news was similarly mixed. Initial jobless claims – those newly laid off – increased from last week to 1.1 million. Workers who have been furloughed (laid off temporarily) make up over half of those who are on unemployment. The hope is that at least three-quarters of them will ultimately rehired, the foundation of the economic recovery.

Small businesses will play an important role in this, as those that remain closed account for about 20% of the rise in unemployment. Thanks in part to the PPP loan program, they have proven more resilient than initially feared. 25% of small businesses shut down in April; by July, only 6% remained shut down. Most say they can avoid closing for at least another six months. Bankruptcies are rising among larger companies, which will present a headwind to the labor market recovery. Firms who have filed or are considering it tend to be those that were in distress before the pandemic.

In the near term, the market is counting on Congress’s passing an additional round of stimulus. Enhanced unemployment benefits have kept consumer spending strong even with high unemployment, but the program will soon run out of money. Congress needs to pass a bill to fund the federal government by the end of September. Most analysts believe a deal on coronavirus stimulus will be struck simultaneously.

The upcoming US election will also rise in importance in the near term. Stocks perform best under divided government. So while markets will be modestly sensitive to the presidential race, investors may pay more attention to the contest for the Senate.

A few more companies reported third-quarter earnings this week. With coronavirus cases largely contained across China, ecommerce giant Alibaba’s operations have almost returned to normal. Profits were higher than expected, though investors were disappointed that this was largely due to reduced spending on new ventures. Gross profits as a percent of sales actually went down as the firm continues its push into industries like food delivery and brick-and-mortar retail.

Lowe’s also reported excellent results. Home improvement stores have benefitted as the housing market booms and Americans spend more time at home.

Next week is relatively quiet. Highlights on the economic calendar include new home sales, an update for second-quarter GDP, and some inflation data. No portfolio companies are scheduled to report earnings.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.